Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for the 'The Fonden Papers' Category

I had a colleague, who will remain nameless, who left Venezuela almost three decades ago for a job in a multilateral organization. Years later, I found him again, working for a foundation. Miguel, he said, “I have the best job in the world, I read proposals from the best scientists in the world, I recommend to the Board the best ones, and they mostly go with my opinion.I basically decide how a few billion dollars are spent in the most exciting areas of of research in biology”

The story comes to mind, because according to the Fonden website, US$ 40 billion ( I have subtracted the missing US$ 29 billion or so) are decided by a “Directorio: (Board), composed of two people: Jorge Giordani and the Executive Secretary, someone named Claudia Garcia Guillen, whose CV is empty in the Fonden pages, and I have been unable to find much about her in google.com.

My friend would (or should) be envious!

Thus, mhewas wrong, there was a better job, imagine having the power or the ability to influence how million and billions of dollars are spent, even if you know little about the field, and steer Venezuela’s “development” with the money.

Except, that I am not sure about how these projects were approved. Was it Giordani who had the last word? Or was it Hugo himself? In the end, after reading all of the projects (I would take a test on my knowledge!) the whole thing makes little sense, when you look at the details of all the projects.

Let’s look at the biggest headache of Chavez Government in the last few years: The Electric problem. The root of all problems was Guri dam. The lack of maintenance forced the Government to stop almost half the turbines. This meant halting almost 50% of the main contributor to the country’s power generator. But, as you can see in row 113 of the spreadsheet, a scant US$ 64 milliom was assigned to this problem.

What gives?

There are 300-plus projects and this one does not even rate being in the top 80. They spent over 500 million dollars in at least 12 projects, US$ 100 million in at least 65 projects and Guri, barely got US$ 64 million.

But then, if you are distributing money right and left in the millions, why do you even bother to write down, consider or even give US$ 2,783 to overhauling the “Recrational Los Lagos El Encanto” Park (row 28). For God’s sake, give them US$ 3,000 out of petty cash and don’t even ask for receipts!

Remember, Fonden was supposed to be spent in foreign currency. All dollars. But you have things like liquidating INAM (row 134), the National Institute for Minors, which I am sure only required local currency.

But there are many like that. Take row 139, US$ 33 million to indemnify people who lost their homes in Lake Valencia, you certainly can’t justify paying them in foreign currency, no?

Or row 274, US$ 74 million to buy homes in the “secondary market” for those that lost their homes in the floods in Caracas. Did these people really get paid in US$ dollars. If not, how did Fonden exchange the money. Did they go to the central Bank and say: “Hey, remember the dollars you used to create Bolivars when PDVSA gave them to you and then you gave to me? Well, I want Bolivars for them now. Get it? If they did that, it would be giving someone Bolivars twice for the same dollars! Talk about being irresponsible!

How about row 230? 42 million dollars to build housing in the city of Caracas. Sounds good, no? Except the organization in charge of execution of the project is none other than the Ministry of Culture.

Hello! I know the Minister of Culture was an architect, but what does culture have to do with building housing?

I could go on and on, like 100 plus million on building ten new universities (Really, how crummy can they be?). Or the Metrocaribe Mariche, which received US$ 49 million (row 119), but can anyone near Mariche tell me if anything has been built? Or all the money invested in agriculture, what happened to it?

The point is that Fonden has been like a petty cash fund on steroids, used without planning, even random in topics and amounts. It is as if the revolution has no priorities, just throw money at stuff, hope something works.

But nothing seems to work.

And it all goes back to the same man, Jorge Giordani, the non-economist, obscure academic in charge of the economy for ten of the last twelve years. In charge of continued and soaring inflation. In charge of this boondoggle of a development fund, called Fonden, where money has been misspent, wasted, some US$ 29 billion somehow missing, and where the word “result”, “priority”, “evaluation” and the like seem to be absent from consideration.

And thus, I promise with this musing (or rant!) I will stop writing about Fonden unless new information becomes available. It should be a scandal, it should be a source of outrage. It is for me. We are talking US$ 25,000 for each person in Venezuela, spent without impact, without control and without accountability. To say nothing of how much of this money has been sent to Cuba.

As I noted in the next to last post, there is now more information on the website of Fonden on the details of the projects funded. After spending a day looking at “tools” that would allow me to manipulate the data, I gave up. So, I began doing the task by brute force, I went to “Todos Los Proyectos” above and copied project by project into an Excel spreadsheet, hoping to find some of the “missing” US$ 29 billion or so. You can find the Excel spreadsheet here.

The quick conclusion?

All of the projects added up to September 6th. 2011 on the webpage of Fonden add up to only US$ 27.22 billion, far from the US$ 69 billion of the earlier report to the National Assembly.

US$ 38.158 billion, some US$ 30 billion short (Still!) of the US$ 69 billion the fund has received and the total provided by the Finance Ministry to the National Assembly.

Thus, all the work did not yield much, except that by doing it brute force, I read every single project in the website in detail and will have more to say about them later. For now, we still have some US$ 29 billion “Unaccounted for” based on the information provided to the National Assembly, as well as combining the projects in the Fonden website on Sept. 6th. 2011 plus those missing from it in the report to the Assembly.

In a very interesting development, all of a sudden there seems to be a rush to have information about Fonden out in the open. For example, after the public absence of any financial statements from the fund since 2007, as if by magic, you can now find 2009 and 2010, as seen below here:

Notice however, that in the rush to complete the information, they somehow either missed or did not have the Financials for 2008, and the information jumps from 2007 to 2009. Two weeks ago, all that was available was up to the 2007 financials. Clearly, there is an attempt, probably in reaction to Deputy Ramos’ accusations, to add information and then say it was there all along. Pity I did not save a picture two weeks ago, but there is more..

Another “new” feature is that what used to be a list of projects without any content, now has a full description of each project, who is executing it, like for example, this rice project:

Where you now can see the information of how much was given to whom, who is executing the project, how much has been disbursed. The contractor is not named, just the Government organization that is in charge of execution. But this is the type of information that was not available before and now “magically” is on the web page.

For example, in this page you find a list of institutions “executing” projects:

Curious about seeing a list of projects executed by the Fondo Nacional de Ciencia Tecnologia e Innovacion, I clicked on it and despite the fact that I know there are projects in that area, there is no information:

So, either this is a comprehensive list of institutions or they are still upgrading the information. I suspect it is a combination of both.

While I have not studied the details, there are more than the 140 projects here than the list given by Minister Giordani to the National Assembly. That list seems to be a global list of projects, this list has the detailed information. More work to be done, help will be welcome!

Seems like there is an attempt to make the information public and claim it has been there all along and make Deputy Ramos look bad or make noise about it, but these pages will show at least the evidence of what happened in time.

When you look at the Fonden Papers, the first question that comes to mind is: How is it that despite spending US$ 9 billion (Fonden) and US$ 2.2 billion (Chinese Fund) in 2010 alone, a huge number compared to the budget, it has so little impact on the economy, public works, visibility and the like?

The answer is simple, these are supposed to be development projects, but in the end the whole process has been perverted by ideology, lack of economic understanding and Hugo Chavez’ whims. And I bet it is those whims that delay and divert money, insuring that the few thing that could generate growth and development are not finished on time.

The problem is how the money is spent. As Quico in Caracas Chronicles has shown, the top four areas over the five years of Fonden expenditures got 70% of the money. Energy and oil was number one, Transport and Communications was two, Defense was three and Cuba was number four.

On Energy and Oil, there is the weird fact that PDVSA contributes to Fonden and then Fonden turns around and gives the money back to PDVSA. This sounds so weird that it’s fishy, but let’s assume these are bona fide PDVSA projects. The problem is that it’s well-known how few jobs these petrochemical/oil projects generate and in the end, it is a zero sum game, PDVSA gave money to Fonden which goes back to a company that is not investing what it should anyway.

Then, there is Defense. Most of the projects are about importing gizmos and toys, which simply give something to do to our military, but truly contribute little to the economy and development.

Cuba is number four, but it obviously contributes little to the Venezuelan economy.

Then there was Transport and Communications, a typical area that contributes to the economy. There are railroads and subway systems, but I decided to pick on a Chinese Fund project that I thought I could follow: The highway of the Autopista de Oriente between Las Lapas and El Guapo, line 1 under the Vice-Presidency under the Chinese Fund. This project for a 33 KM. piece of highway came to US$ 143 million, or US$ 4.3 million per Kilometer, which I have no clue if it is reasonable or not, in terms of price. You can see the stretch of road we are talking about in the map below, it is the one labelled number 3.

The earliest reference I can find to this part of the road was this Radio Mundial link, in which then Governor, now Deputy Diosdado Cabello (he was ousted by Capriles in an election) says that next week (this was Nov 24th. 2007!) they will name the winner of the bidding for the project. Cabello gloats, that once this part is done, they will build beyond El Guapo to Playa Pintada to complete the whole highway in his state.

A few months later in May 2008, the Agencia Bolivariana de Noticias carried an item (now not found on that website) saying that the Las Lapas-El Guapo road would be funded by the Chinese Fund and would be ready in two years (That would have made it May 2010, 15 months ago)

Except that this picture is from the construction of the road in October 2010, less than a year ago:

In fact, close to four years after the the announcement of the winning bid, the road appears to be about half completed, because in March of this year, for the Carnival holidays, the Government allowed cars to flow through the 15 Kilometers of only one side of the highway that was ready. In fact, I asked a friend who confirms that the road has yet to be completed to El Guapo.

The Vice-President, Elias Jaua actually opened this half of half the road, saying the money had been approved for the whole road (something that happened already in May 2008, three years earlier) and that by Christmas 2011, these 15 Kilometers of the highway would be finished and then, they would complete the road all the way to El Guapo.

Thus, the two year 33 Km. project is now two years behind schedule and after four years, only 15 Km. of the 33 Km tranche. will have been completed.

Clearly, execution is not this Government’s forte.

But it is more than that. This Government loves to make announcements and clearly the money is not even there. When Diosdado Cabello announced a company had been chosen to build the project, there was no money for it. It was only six months later when the money was found thanks to the Chinese Fund. The rest, since then, is unknown to me. I have no idea why it has been delayed so much. If execution speed goes as badly as it has gone so far, it will take at least four more years to complete the remaining 18 Kms. to El Guapo. That is eight years or four times the original estimate!

And this shows why there is so little economic impact. Projects are drawn out for years, badly executed and the money is not being spent in the right areas, because the Chavista Government prioritizes ideology (Defense, Cuba) over investment projects that generate jobs or infrastructure. And even when they have these projects, after twelve years in power, they have not found a way to be effective and efficient. And I am ignoring corruption!

Just think, the Caracas-la Guaira highway, about the length of the first part of the Las Lapas-El Guapo road, was started on December 1950 and inaugurated on December 1953. But at the time, this was truly an engineering feat, with huge viaducts and an imposing grade, the Las Lapas to El Guapo highway is mostly flat and has little engineering novelty.

I hope the readers will look at the Fonden papers and find one project to study in their area of expertise, this way we can all pool our expertise and dissect how much waste these discretionary funds represent.

About two weeks ago I told the story of Deputy Carlos Ramos of the National assembly who provided us with an excel spreadsheet of the projects financed by Fonden after I wrote to him. The sequence of how this spreadsheet came about was somewhat unclear, the Congressman saying that there was some US$ 29 billion, give or take a billion simply missing. He made this discovery when he added all of the numbers provided by the Minister of Finance and realizing the total was different, the Minister saying US$ 69 billion had been approved for projects, but the addition of the numbers totaling only about US$ 40 billion.

Quico at Caracas Chronicles then decided to call the Deputy’s assistant to see if we could obtain the original information. But it just so happens that XXIst. Century Socialism, uses XIXth. or XXth. Century tools. There isn’t a scanner to turn the 30 or so pages turned in by Minister of Finance Giordani to the National Assembly into digital form, thus, unless Quico, who lives 2,448 miles away from Caracas, could drop by and pick them up, he (and we) were out of luck. Fortunately, the Devil had to go to Caracas and could go get the papers.

Thus began my trek to the Pajaritos building. The building (pictured above) is actually called the Jose Maria Vargas building, but nobody calls it that, everybody calls it Pajaritos, the name of the “Esquina” (corner) where the building is. I made the mistake of showing up five minutes past noon, which meant that I could not enter the building. (The building is shared by the administrative offices of the Judiciary and the National Assembly, each has its own reception, which opens into the same hall, you can get into the Judiciary at any time, but not to the Assembly between noon and 1:30 PM)

I called Deputy’s Ramos office and they told me they would come down and give me the info we had requested. Waiting there was an experience in itself, I could not go in, but the guy in the mortuary suit that controlled the people allowed a few ladies, buddies and officials to go through. While I waited (He asked me three times what I was doing standing around there, I studied the dozens of people who showed up looking for help. Quite an experience, from Guajiro indians to students wanting to talk to their Deputy, mostly to see if they could get some money (preferably cash).

Finally, the extremely efficient assistant of the Deputy came down and gave me a folder with copy of all the material. You can find the projects all here. Essentially, the story is that Deputy Ramos, as a member of the Comptroller’s Commission, requested on April 6th. that Giordani give him a full list of projects approved not only for the development fund Fonden, but also for the Chinese fund, the Fondo Chino. On April 28th. Minister Giordani sends the info to the head of the Comptroller’s Commission, Hector Navarro and on August 2nd. Deputy Ramos sent Giordani a letter asking about the fact that there seems to be some US$ 29 billion missing from the project list.

The problem is that, as you can see in the link, Minister Giordani provided the complete list of 140 projects, giving the name, the Ministry, the amount awarded, the amount disbursed over the years and the amount disbursed in 2010 (Which is actually the only thing the Deputy was asking for) But Giordani sent all of of the info, and when you add up the total amounts approved and disbursed historically, the information provided says that projects were awarded some US$ 69.446 billion (down to the cent as Quico shows) of which US$ 66.057 billion has been disbursed and US$ 9.621 billion was disbursed in 2010.

Except…that if you create an Excel spreadsheet put all 140 numbers and add it all up, the total is “only” US$ 29 billion short, as discovered by Deputy Ramos. Now the Deputy is asking for even more information, including who got the contracts for each project.

It’s interesting to note that the total given by Giordani is roughly what was contributed by the Venezuelan Central Bank, under the screwed up concept of excess reserves, and PDVSA, whose contributions are now set by law, as shown in the Table below, where I have used all public sources from the BCV, Fonden and PDVSA to come up with the grand total of US$ 69.80 billion contributed to Fonden.

We can speculate all we want: Were projects removed from the list? Was the total simply faked? Was this intentional? Was it sloppiness? Can they provide the information or they just don’t have it? Is the money somewhere else? Is the money missing?

But no matter what, the point is the same, US$ 29 billion is currently “missing” or unaccounted for from the parallel fund Fonden, which is managed by Chavez and Giordani at will and in an extremely discretionary fashion. (They used part of the money to buy a new Embassy in Russia, for example)

This would be a scandal in any country in the world, but apart from Deputy Ramos and a couple of nutty bloggers, it just seems to have not even induced a yawn in Venezuelan politics.

Hopefully, we will help bring the issue more into the spotlight.

And again, kudos to the Deputy and his efficient and diligent assistant!

You all know about Fonden, the “development” Fund that Chavez created and uses as his sort of petty cash fund for immediate needs. I was reading something or other the other day and found that Deputy Carlos Ramos had sent Minister Giordani a questionnaire about Fonden.

Naive that I am, I looked up this Deputy who I don’t know, and lo and behold, I found out he is an Economist, has a masters in Political Science, has been a Deputy before and has been budget Director of Merida State and General Manager of the Alcaldia Libertador. Better yet, he even has a webpage.

Naive that I am, I believe in democracy, open information and stuff like that, I got Deputy’s Ramos’ email from his website and wrote to him telling him I am interested in Fonden, saw his press conference and was wondering if he could send me the material he talked about, promising I would let him know if I found anything interesting. (And that I would write about it in my blog, of course)

Within a couple of hours, I had a response and a promise that the material would be sent to me. The next day, his Assistant sent me all but the Minister’s response, which I am promised would be sent soon.

I really haven’t found anything earth shaking yet. Certainly nothing as significant as the US$ 29 billion discrepancy between what the fund has assigned to projects and what has been disbursed to 140 projects, but the Fund certainly does not have such a large amount of money today. That’s Chavista math for you, a US$ 29 billion discrepancy.

So, as I await for Giordani’s response on this “small” US$ 29 billion discrepancy, I find that 12% of the development investments have gone to Defense, essentially buying weapons, 11.6% to projects of the IXth. “Mixed Cuban-Venezuelan Commission”, 19% in PDVSA projects* and half a billion Bolivars to Bandes projects and drinkable water around the Nation.

Now, I really don’t know, or understand, what that “mixed” Cuban-Venezuelan Commission has to do with Venezuelan Development, or why there is this circular relationship in which PDVSA gives money to Fonden and then part of it gets sent back to PDVSA for unnamed projects. It sounds to me as illogical as most things Chavismo does.

To say nothing of fancy weapons being part of “development”, but I guess you have to keep the military happy and satisfied with new toys like Russian Jet fighters (US$ 2.5 billion) or a bunch of helicopters (Only US$ 483 million).

But the juicy story seems to be in the “missing” US$ 29 billion, equal to the country’s international reserves, for which I will have to wait for the Minister’s response and hope there is a Chapter II to this story.